When "Lindy" was trying to figure out the implications of the latest divorce settlement offer that she received from her soon-to-be ex-husband "Ted," she panicked. She would have asked her lawyer for guidance, as 79% of divorcing individuals end up doing, but she was not sure that her lawyer could give her the guidance she needed.
The previous offer had come two days before their last court appearance. There was just not enough time to understand the implications of the various components of the offer and assess whether it was an equitable division of marital assets. Lindy was just too nervous to make the decision "on the steps of the courthouse," so she said no.
Clearly, there is something wrong with a process in which the financial outcome is so critical to both parties but people like Lindy and Ted get no professional financial support despite spending substantial sums of money litigating a divorce. Yet it is not surprising. The financial issues of divorce, including shorter-term tax issues and longer-term financial planning issues, have become terribly complex. Divorce lawyers have enough on their hands with the legal issues of divorce. Increasingly, they are unable to counsel their clients in depth on the financial implications of divorce, which inevitably have a lasting impact on their quality of life and stability long after the divorce itself is finalized.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
According to a recent survey conducted by the Institute of Divorce Financial Analysts, 75% of respondents believe that a divorce financial specialist would have been helpful in the preparation, negotiation or recovery phases of their divorces. According to this same survey, 45% of people litigating their divorces felt unprepared to enter financial negotiations, and 40% of those mediating their divorces feel the same way.
No wonder divorce financial planning has risen as a specialty. Professionals dedicated to meeting the needs of divorcing individuals can help people such as Lindy and Ted understand the financial issues of divorce, negotiate settlements and recover into a financially stable post-divorce life.
In Lindy's case, she was fortunate to be referred to a divorce financial planner by a divorce coach. Divorce financial planners build on financial expertise often acquired by certified financial planners (CFP) or certified public accountants (CPAs). They also often hold the certified divorce financial analyst (CDFA) designation. They excel in their ability to simplify the complex financial issues of divorce so that people like Lindy and Ted can understand the consequences of their decisions and plan accordingly for their separate futures. In addition, divorce financial planners bring to the table an understanding of tax issues in divorce, employee stock options, retirement plans, pension plans, Social Security, real estate and long-term financial planning. They help assess potential outcomes of strategies such as trading home equity for ownership of retirement accounts—is that a good idea for you for the long term?
As with other financial specialists, divorcing couples and individuals are usually better off picking a fee-only divorce financial planner who will have his or her clients' best interests at heart. A great resource to find one is Association of Divorce Financial Planners (ADFP).
In Lindy's case, the new offer seemed to address her needs better. Ted offered to give Lindy more of the 401(k) in exchange for keeping his pension. In addition, Ted offered more alimony. However, Ted's offer was still not clear about his employee stock options, as he did not know how to value them. Plus, the offer did not address the issue of college funding for their 13-year-old daughter.
Lindy's divorce financial planner carefully reviewed the settlement offer in light of her individual circumstances, explained the various issues and made recommendations for her lawyer.
After some more negotiations, Lindy and Ted were able to come to an agreement and avoid a costly trial. Even Lindy's lawyer was happy with the process, as it helped him to focus on his area of expertise: writing the agreement and managing the legal process.
Chris Chen, CFP®, CDFA, is the founder of Insight Financial Strategists, LLC, a fee only investment advisory firm in Waltham, Mass. He specializes in retirement planning and divorce financial planning for professionals and business owners. Chris is a member of the Financial Planning Association and the Massachusetts Council on Family Mediation. He is on the Board of Directors of the Association of Divorce Financial Planners.
-
The Original Property Tax Hack: Avoiding The ‘Window Tax’Property Taxes Here’s how homeowners can challenge their home assessment and potentially reduce their property taxes — with a little lesson from history.
-
Is Mint Mobile's Home Internet a Game-Changer or Just Another Option?Mint Mobile recently unveiled its new home internet service. We break down how it works so you can determine if it's a great value for your needs.
-
Five Downsides of Dividend Investing for Retirees, From a Financial PlannerCan you rely on dividend-paying stocks for retirement income? You'd have to be extremely wealthy — and even then, the downsides could be considerable.
-
I'm a CPA: Control These Three Levers to Keep Your Retirement on TrackThink of investing in terms of time, savings and risk. By carefully monitoring all three, you'll keep your retirement plans heading in the right direction.
-
This Is Why Judge Judy Says Details Are Important in Contracts: This Contract Had HolesA couple's disastrous experience with reclaimed wood flooring led to safety hazards and a lesson in the critical importance of detailed contracts.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
Ten Ways Family Offices Can Build Resilience in a Volatile WorldFamily offices are shifting their global investment priorities and goals in the face of uncertainty, volatile markets and the influence of younger generations.
-
Should Your Brokerage Firm Be Your Bookie? A Financial Professional Weighs InSome brokerage firms are promoting 'event contracts,' which are essentially yes-or-no wagers, blurring the lines between investing and gambling.
